05/18/2012 09:01 EDT | Updated 07/18/2012 05:12 EDT

Loonie moves lower amid falling oil prices, nervousness about future of eurozone

TORONTO - The Canadian dollar gave up early gains to close lower Friday amid nervousness about the future of the eurozone while oil and copper prices moved further into multi-month lows.

The commodity-sensitive loonie fell 0.17 of a cent to 97.96 cents US, its lowest close since Jan. 13.

It had been positive for most of the morning as data showed that the inflation rate was slightly higher in April and commodities made early price gains. Statistics Canada said that Canada’s annual inflation rate rose to two per cent in April, from 1.9 per cent the previous month.

The overall rate included a 1.1 per cent increase in gasoline prices since April 2011, when fuel prices hit near-record highs. It was the first time since October 2009 that the gasoline component of inflation rose more slowly than the index.

The loonie has slid about 1.75 cents US this past week on growing worries that Greece will leave the eurozone with unpredictable effects on the rest of the monetary union and the global economy in general. Traders have avoided risky assets such as commodities and resource-based currencies such as the loonie.

The lack of investor confidence has also spread this week to Spain and the country's banking sector in particular, which is groaning under the weight of an imploded real estate market that left financial institutions stuck with a slew of bad loans.

The level of bad loans on the books of Spain’s banks has risen to an 18-year high, the country’s central banker reported Friday. The Bank of Spain said that lenders’ and savings banks’ bad loan ratio had risen in March to 8.36 per cent from 8.15 per cent the previous month.

News of the increase followed a downgrading by credit ratings agency Moody’s late Thursday of the country’s banking industry.

Shares in Bankia SA, a recently nationalized bank that is heavily laden with toxic assets, shot back up 18 per cent after losing almost that much Thursday on a media report that depositors had withdrawn €1 billion in the week since the state took over.

The nervousness about Spain’s banks grew as the eurozone financial crisis intensifies. Political turmoil in Greece has increased the likelihood that it could leave the 17-country monetary union, a move that could have ripple effects throughout Europe and the world’s financial markets. Greeks go back to the polls June 17 after an election May 6 proved inconclusive.

There are concerns that parties campaigning for an end to the austerity measures that have secured vital bailouts will be in a stronger position after the vote.

Depositors have also been pulling their funds out of Greek banks. People fear the country’s financial sector might collapse if Greece left the eurozone and that their savings would become worthless if the country started using a substantially devalued new currency, such as the drachma.

Commodity prices were mixed after the risk-on trade pushed prices for oil and metals to multi-month lows this week.

The June crude contract lost $1.08 to US$91.48 after closing Thursday at its lowest level since November.

July copper was down a cent at US$3.47 a pound after hitting levels last seen in January. And June bullion was ahead $17 to US$1,591.90 after hitting its lowest close since last July on Wednesday.